The grey economy: how retirees rort the pension

Peter Martin

Welfare fraud on a massive scale ... elderly people wanting to get the pension are hiding their income in cash to ensure they qualify for the means-tested benefit, former Reserve official Peter Mair says. Photo: Jessica Shapiro

ELDERLY Australians committing welfare fraud on a massive scale are behind the extraordinarily high number of $100 notes in circulation, a former senior Reserve Bank official says.

Yesterday the Herald revealed there are now 10 $100 notes in circulation for each Australian, far more than the more commonly seen $20 notes.

One popular explanation is that they are used for illegal transactions as part of the cash economy, something the former Reserve official, Peter Mair, rejects as a "furphy".

In a letter to the Reserve Bank governor, Glenn Stevens, dated July 4, Mr Mair laid the blame squarely on elderly people wanting to get the pension and hiding their income in cash to ensure they qualified for the means-tested benefit.

"The bank is basically facilitating a tax avoidance scheme by issuing high denomination notes," he told the Herald. "They are not needed for day-to-day transaction purposes, or even as reasonable stores of value."

His best guess is the average pensioner couple could hold up to $50,000 in undeclared $50 and $100 notes to get access to the pension.

Mr Mair said that in 1996 when the green plastic $100 note replaced the grey paper note, the Martin Place headquarters of the Reserve received regular visits from retirees wanting to withdraw large quantities of the new notes. He said the commercial banks had sent them to the Reserve because they did not have enough $100 notes on hand.

Mr Mair said the return for an Australian close to getting the pension who held $10,000 in cash, rather than declaring it, was "enormous".

"If putting it under the bed or in a cupboard means you qualify for the pensioner card, you get discounted council rates, discounted car registration, discounted phone rental - in percentage terms the return is enormous," he said.

Mr Mair used comparisons of the holdings of large-denomination currency in Australia and New Zealand to back his argument. "In broad terms the average value of notes held by New Zealanders is about one third of the $2000 held by Australians - almost all of which by value is in the $50 and $100 denominations," he wrote in his letter.

"An obvious explanation for the difference is means test-free age pensions in New Zealand."

His letter to the governor proposes phasing out the $100 and $50 denominations.

"Cards and the internet have delivered a body blow to high-denomination bank notes. They are redundant," he said. "There is no longer any point in issuing them except to facilitate tax dodging. The authorities would announce that from, say, June 2015 every $100 and $50 note could be redeemed but no new notes would be issued. After June 2017 every note could only be redeemed at an annual discount of 10 per cent. It would mean that after two years, each $100 note could only be redeemed for $80, and so on."

The letter acknowledges the proposal would be contentious and says it should not be done "in any way precipitously", but as payments become more electronic it will become inevitable.

"What would remain in circulation are coins and a modestly expanded issue of currency notes in the $10 and $20 denominations. There is every reason to expect that a national currency issue of this character would soon be adequate.''

535 comments

Now its the pensioners turn to cop it?

Enough is enough.

You work all your life, you build this decrepit kleptocracy for them, and then they try to squeeze you even as you near the end.

MORE money for ordinary working people and LESS for the banksters and plutocrats who've ruined the globe.

People need to stand up to unelected reserve bank parasites and the capitalist mother-ship in Canberra.

Commenter

Benny

Date and time

September 25, 2012, 6:35AM

I have $250,000 in $100 notes, buried in a PVC pipe container in bushland. Why? Because I fear a banking collapse in Australia. Our banks are totally dependent on foreign funding that could dry up, and they are also totally dependent on the mortgage market (60% of their books) in Australia, which could go belly-up quite quickly if China tanks.

I suggest a lot of those $100 notes are not held by old fogeys, but by investors like me, who are worried little munchkins. (BTW I also have $1.5 million in the banks).

Commenter

Cash Hoarder

Location

Perth

Date and time

September 25, 2012, 7:22AM

Sense of entitlement much? Sure, let's condone tax avoidance for those retirees, who have benefitted from enormous wealth creation thanks to the housing boom, still the primary asset for just about all families. No, let's use the argument that "I've worked for it, so I can cheat now" because who gives a stuff about the next generation who effectively has to subsidise through higher taxes, the excess being thieved by the older generation.

You're condoning cheating the system and taking from a fixed pool of money, leaving less money for the "ordinary" people you claim to champion.

Commenter

Mick

Location

Gong

Date and time

September 25, 2012, 7:32AM

Agree. This theory is absurd. The tiny minority of pensioners with that much to spare don't hide it under the bed anymore, they're sailing the Whitsundays.

This clown is out reserve bank governor?

Heaven help us.

Commenter

sarajane

Location

melbourne

Date and time

September 25, 2012, 7:40AM

There is no evidence in this article to say this is even happening. However, like Gerry Harvey who opened his mouth, alerted people to cheap online goods and turned internet sales mainstream, watch this space.

Commenter

jessiedog

Date and time

September 25, 2012, 7:49AM

A person can maintain the pension with a surprising level of income. They may only receive a dollar or so of pension but, as the article notes, they will receive a range of other benefits. Seriously, do you think it is appropriate for people who can afford to support themselves to take a pension? It's not a reward for a lifetime of work. It's a safety net.

Commenter

John Chicken

Date and time

September 25, 2012, 7:59AM

@Cash Hoarder - if you have actually tucked a pile of cash away in the bush in case the banking system collapses, you are an unalloyed fool. If the banking system collapses in the way you imagine, all cash would become worthless overnight. Trade will be by barter or the butt of a shotgun, more or less instantly. If you came to my fuel store to buy gas in the aftermath, and tried to give me worthless plastic notes, I would double over in hysterics.

Much like I am now.

Commenter

Taniwha

Date and time

September 25, 2012, 8:02AM

It wouldn't bother me if they weren't such a bunch of nimbys which has played a very significant part in the ridiculous housing situation.

Commenter

Fred

Date and time

September 25, 2012, 8:05AM

It's close to thirty years since self-funded retirement became mainstream. I can accept that a 90-year-old lived and worked under a system that said everyone would get the pension - a 65 year old on the pension is just like any other dole bludger on welfare.

Commenter

DisDis

Date and time

September 25, 2012, 8:08AM

@ DisDis - your comment is absurd. My mother is 67 and on a pension. She didn't work as she raised 4 kids, and only started working after my father left us & took as much as he could with him. She had to work two jobs to keep a roof over our head. To label her a 'dole bludger' is outright offensive. Her circumstances have not allowed her to amass a large chunk of super to cover her later in life (by no fault of her own).